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Loaned Employees

Responsibility for the payment of workers’ compensation benefits is a joint affair when one employer loans its employee to another employer. If the employee is a party to a contract for hire with the third-party employer, the work performed by the employee is principally for the third-party employer, and the third-party employer controls the details of the employee’s work, the third-party employer will be held responsible for workers’ compensation benefits should the employee become injured. The element of control is a substantial factor is determining the employment relationship between the parties.

The necessity of a contract for hire with the third-party employer is rather important. Principally, when the employee enters into an employment relationship with the third-party employer, he is giving up the right to maintain a common law negligence action. The relinquishment of such a right makes it imperative that the employee makes an informed and conscious decision to enter into a contract for hire with the third-party employer. To require otherwise would effectively allow others to eradicate the rights of the employee.

The nature of the employee’s work is a guiding force in determining workers’ compensation liability. If the employee’s work is solely for the benefit of the third-party employer, chances are good that compensation for the worker’s injury will fall to the third-party employer. However, where both employers have an interest in the employee’s work, with such work being beneficial to them both, the responsibility for workers’ compensation will fall to both employers.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.